Exposure to PSUs may hurt LIC’s returns

Bailing out public sector companies has led to under-performance of Life Insurance Corporation (LIC)’s equity portfolio, according to a report by Business Standard. The country’s largest insurer has not been able to beat the benchmark BSE Sensex index. Since March 2012, the value of LIC’s equity portfolio has risen around 65 percent even as the Sensex doubled during the same period. Similarly, the combined market capitalisation of LIC portfolio companies has risen 103 percent, whereas the BSE-500 index has surged 115 percent in six years, the report suggests. According to the report, LIC’s stake in state-owned companies has risen from an average of 5.5 percent in March 2012 to 7.7 percent in March this year. The insurer’s stake in non-bank PSUs has risen from 4 percent to 7.4 percent in the same period. The combined market capitalisation of these PSUs was up 25 percent in the six-year period, while the combined market capitalisation of the PSBs was up 29 percent. PSBs’ share prices are down around 43 percent on average, which has led to LIC making losses in its investments in such banks, the analysis suggests. LIC is estimated to have made incremental investment of around Rs 685 billion in all PSUs in the last six years, accounting to almost 48.5 percent of all new stock exposure in the same period. The estimate is based on quarterly changes in the LIC’s shareholding in companies and their average quarterly share price, the report suggests, according to the report. At the end of the March 2018 quarter, LIC held more than 1 percent stake in 376 listed and actively traded companies. The stake was worth around Rs 6 trillion at the end of June, rising from Rs 2.8 trillion at the end of the March 2012 quarter. However, a large part of the increase in portfolio value is because of incremental share purchases by the insurer in the period, the report adds. The newspaper’s analysis is based on the companies’ quarter-end market capitalisation for the last 25 quarters.